August 2026
Tariffs are back in play. Canadians are fighting a trade and an economic war, supported by a majority, to defend their sovereignty against the U.S. Canada has placed counter-tariffs on several hundred products made in the U.S. as retaliation for a new set of tariffs imposed on Canada by the Trump White House. A selloff in long-term U.S. Treasuries accelerated in July after the Federal Reserve held interest rates steady. Leaving rates unchanged lowered short-term bond yields, while hurting long bonds, as investors feared that the lack of action will fuel inflationary pressures down the line. The gap between short- and long-term rates widened, steepening the yield curve. The attempt by the fed to bring long rates down by purchasing long term bonds in the market was short-lived and will hinder any hopes that the U.S. has to get the debt under control. The U.S. national debt topped $40 trillion as of August, driven by cumulative budget deficits and rising borrowing costs. In August we maintained our twelve-month forward outlook of three months of Stagnation (U.S. Real GDP growth less than 2.5%) followed by nine months of Recession (negative GDP growth) over the next twelve- month period.
China’s annual inflation eased to 0.5% in July 2026,1 while China’s surveyed urban unemployment rate rose to 5.2% in July from a one-year low of 5.0% in June.2 China’s trade surplus widened to USD 112.5 billion in July, up from USD 97.70 billion a year earlier. Exports jumped 23.9%, driven by strong demand for AI-related technology products and a rush by manufacturers to ship goods to the U.S. ahead of new tariffs. Imports rose 27.7%.3 Eurozone economic growth accelerated to 1% in the second quarter from a revised 0.5% three months earlier.4 Eurozone annual inflation accelerated to 2.9% in July. The increase was driven by a renewed surge in energy prices, with energy inflation accelerating to 10.3% as hostilities between the U.S. and Iran resumed.5 The seasonally adjusted unemployment rate in the Eurozone was at 6.3% in July.6 The Euro Area recorded a trade surplus of €8.6 billion in June 2026, up from €4.8 billion in June 2025. Shipments increased to all major trading partners, including the U.S. (10.3%). Imports also rose across the board, particularly from the U.S. (11.6%), China (12%), and the UK (12.1%).7
The U.S. economy expanded at an annualized rate of 1.5% in the second quarter of 2026, slowing from 2.1% in the previous quarter. Government spending fell 1.0%, dragged by a 13.2% plunge in non-defense federal spending. Imports surged 12.5%, outpacing a 4.5% increase in exports.8 The annual inflation rate in the U.S. slowed to 3.4% in July 2026,9 while the U.S. unemployment rate dropped to 4.1% in July.10 The U.S. trade deficit narrowed to $73.3 billion in June 2026 from $77.6 billion in May, as imports declined more sharply than exports.11 Canada’s economy expanded 0.8% in the second quarter of 2026, following an upwardly revised 0.1% increase in the previous three-month period, driven by stronger exports, household spending, and business capital investment. Exports rose 3.6%. On an annualized basis, the economy grew 3.3%.12 Headline inflation in Canada inched higher to 3% in July from 2.8% in the previous month. Gasoline price inflation accelerated to 25.7%, tracking wholesale oil and refined product markets globally as strikes between Iran and the U.S. reignited in the period and triggered blockades on tankers in the key region.13 The unemployment rate in Canada fell to 6.4% in July from 6.5% in the previous month.14 Canada recorded a trade surplus of C$3.86 billion in June, widening from the C$3.7 billion in May to mark the largest surplus in over four years.15
Turbulence continued to plague U.S. markets in July, as stocks were buffeted by AI related jitters and fluctuating oil prices. The S&P 500 finished the month down 0.1%. Smaller-caps and mega-caps underperformed their large-cap peers, with the S&P Midcap 400 and S&P Small cap 600 declining by 2.4% and 1.9% respectively. The S&P/TSX Composite increased 1.2%. European indices closed July with the S&P Europe 350 gaining 1.2% over the month. The Netherlands, the prior quarter’s leading contributor, became the largest detractor, while the U.K. ranked as July’s top contributor. Global equities cooled in July, with the S&P Pan Asia BMI (USD) declining 1.6%.
In August we maintained the July asset allocation. We continue to have a higher allocation to Canadian equities over U.S. equities as Canada is preferred as a more stable market. Gold is held across all models as a geopolitical risk hedge. Gold’s historical performance during times of crisis, portfolio diversification, and inflation hedging are also key factors for central banks to hold and add to their gold reserves.
Downside risks intensify while there is no resolution to the escalating trade war. The global economy is moving away from the U.S. as countries are strengthening their connections as a natural defence against America’s retreat, and Canada is at the centre of those expanding connections. 116 trade agreements have been announced between 31 countries excluding the United States since Trump’s second term commenced. Our approach to portfolio management is nimble, opportunistic, and deliberate in identifying asset classes that are best placed to generate returns in a new world order. Our focus is on protecting portfolios from downside risk, and we believe that our investment process is working to achieve that goal.
Deborah Frame, President and CIO
Drew Millard, Portfolio Manager
1 Trading Economics. China Inflation. August 9, 2026.
2 Trading Economics. China Unemployment. August 17, 2026.
3 Trading Economics. China Trade. August 7, 2026.
4 Trading Economics. EU GDP. August 14, 2026.
5 Trading Economics. EU Inflation. August 19, 2026.
6 Trading Economics. EU Unemployment. August 1, 2026.
7 Trading Economics. EU Trade. August 14, 2026.
8 Trading Economics. U.S. GDP. August 26, 2026.
9 Trading Economics. U.S. Inflation. August 12, 2026.
10 Trading Economics. U.S. Unemployment. August 7, 2026.
11 Trading Economics. U.S. Trade. August 4, 2026.
12 Trading Economics. Canada GDP. August 28, 2026.
13 Trading Economics. Canada Inflation. August 17, 2026.
14 Trading Economics. Canada Unemployment. August 7, 2026.
15 Trading Economics. Canada Trade. August 4, 2026.
Index return data from Bloomberg and S&P Dow Jones Indices Index Dashboard: U.S., Canada, Europe, Asia, Fixed Income. July 31, 2026. Index performance is based on total returns and expressed in the local currency of the index.
